Research On The Methods To Measure Catastrophic Risk And Pricing Insurance Derivatives

Since the 1970s the frequency and severity of catastrophe have been increased so great that the insurance companies can not take the catastrophic risk only by themselves. Just in this situation, catastrophe insurance products such as CAT futures, CAT options, CAT bonds began to appear. In the recent years, the rapid development of catastrophic insurance derivatives caused the new non-catastrophic insurance derivatives such as life insurance derivatives and weather insurance derivatives, to come forth.Therefore, research on the insurance derivatives pricing has great significance on both economic theory and practice.This thesis consists of three parts. The first part investigates the methods to measure the catastrophic risk and pricing for the catastrophic excess-of-loss reinsurance contracts. The Second part presents some new methods to pricing for catastrophic insurance derivatives, which is the core of the thesis. The last part studies the pricing methods to the life insurance derivates.The main contents are as follows:Chapter 1 makes a systematic exposition of the differences and relationships between insurance pricing methods and financial pricing methods.Chapter 2 introduces comprehensively the operation mechanism, characteristics, and present pricing methods to the insurance derivatives.In Chapter 3,firstly,we construct a high quantile estimator of a heavy-taileddistribution subclass------Hall distribution class based on exponential regressionmodel.Risk of catastrophic insurance is measured. Secondly, we pricing for the catastrophic excess-of-loss reinsurance contract by virtue of the implied risk neutral distributions.At the same time, a closed expression to the pricing of catastrophic excess-of-loss reinsurance is presented while considering the feature of Weibull distribution and excess-of-loss reinsurance contract.In Chapter 4, we introduce the PORT method to the field of catastrophic insurance derivatives pricing, and establish a statistical pricing systematic framework which is particularly emphasized on the claims with low frequency and large losses. A series of explicit form solution to catastrophic insurance derivatives pricing is obtained. In the last, we develop a simple arbitrage approach to valuing the insurance-linked securities notwithstanding in the framework of non-traded underlying. A closed-form valuation expression is given in the case of pure crashes.In Chapter 5, we introduce a European call option on pension annuity. The pricing principle for some particular cases is illustrated by setting up the corresponding actuarial model. What's more, the call option is compared with traditional pension contracts. Second, we present a methodology for the modeling and pricing of longevity bonds. We show how to derive implied survival probabilities from annuity market quotes.The price dynamics of longevity bonds is obtained.The main aim of the thesis is to provide decision-making support for the insurance companies to run safely and efficiently, and for the investors in financial markets to make rational investment. By virtue of insurance derivatives insurance companies can transfer the risk that they can not take only by themselves to capital markets. Therefore, it strengthens the stability to run for insurance company. What's more, it diversifies the choices of investors and reduces investors' systematic risk. In all, research on insurance derivatives pricing is very meaningful to application. Of course, economic theory and actuarial theory combine with practical business organically.